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Audit: Macomb cities have little to show for 15% sewer rate hike, $8.3M in legal fees

Former Macomb County Public Works Commissioner Anthony Marrocco had spent nearly $8.3 million in legal fees since 2013 — fees that accounted for a nearly 15% sewer-rate increase for 11 communities, a new audit disclosed.

The audit of legal fees for the Macomb Interceptor Drain Drainage District — made up of cities and townships that tie into the collapsed sewer line in Fraser — found that millions were spent with no apparent benefit to the communities or ratepayers, but it also found “no direct negligence or misconduct” and noted that "it's doubtful that there is any way to recover these legal fees."

The audit, commissioned by Public Works Commissioner Candice Miller, was released Tuesday to the Free Press through a Freedom of Information Act request. It concluded that while some of the actions by Marrocco, who spent 24 years as commissioner, were “ill-advised and were not open and transparent,” they appear to be within his authority.

UHY Advisors, a certified public accounting firm with offices in metro Detroit, reviewed $6.4 million in legal bills for two lawsuits — $4.5 million tied to the Detroit bankruptcy and $1.9 million dealing with the Oakland Macomb Interceptor Drain. Public Works found an additional $1.9 million spent on another case subsequent to the audit, according to an executive summary.

Public Works spokesman Dan Heaton said Tuesday that the audit was released as part of a public records request and that Miller did not plan further comment. The audit cost $25,000.

Last fall, the county executive’s office found through a Freedom of Information Act request that Marrocco incurred millions of dollars in legal bills from 2013 to 2016 that were not approved or authorized by the executive’s office, county commissioners or the drainage district board, according to the audit's summary.

Legal costs became an issue in the hotly contested and expensive election duel last fall between Miller, a Republican, and Democratic incumbent Marrocco. Miller vowed to conduct a forensic audit if elected.

Marrocco also took heat from Macomb County Executive Mark Hackel, a Miller ally, about what Hackel said was then $5.6 million in legal fees attached to bills in the 11 communities.

In a Free Press report before the election, Marrocco called Hackel's announcement "a political distortion of what happened, created by my opponents to smear me." He said the figure was $4.6 million for services over three years and that invoices were paid from an emergency repair and replacement fund that did not require a special assessment against communities.

The audit released Tuesday states that the legal costs appeared to be appropriate under the act that created the county's wastewater-disposal district process. It says the timing of the $6.4 million in legal payments appears to be in line with actions taken in each case, but that “it was difficult to prove the billings were entirely proper or accurate without additional costly research.”

It also concluded that it appeared reasonable that the communities, instead of county taxpayers, were charged for legal costs.

“While no illegal activity was uncovered, many questions were raised regarding the appropriateness of incurring the legal costs or the likelihood of success,” according to the summary.

“Unfortunately, there was no transparency to the legal bill approval process and no involvement or notice to ... communities paying the costs. While Marrocco may have had the authority to bring the cases and spend the funds, some of the actions taken were ill-advised, there was no accountability and millions were spent for little to no benefit to ... communities or their ratepayers,” the audit summary states.

Miller partnered with the executive’s office to conduct the audit through UHY Advisors and outside legal counsel Foster Swift. The audit broke down each lawsuit, the six firms used and the cost per the 11 communities.

Two firms — Dechert in New York and Kirk, Huth, Lange & Badalamenti in Clinton Township — received most of the legal fees. Dechert received more than $3.3 million during a 10-month period for its work in the Detroit bankruptcy matter, for which Marrocco spent a total of $4.4 million to three different firms. The New York firm had rates up to $1,115 per hour, the audit states.

The claim related to the 2004 sinkhole in Sterling Heights and Great Lakes Water Authority appointment issues, according to the audit. Dechert was hired 10 years after the sinkhole occurred.

The case eventually was brought to protect public works' claim in bankruptcy against alleged overbilling for the 2004 sinkhole. Public works settled by withdrawing its objections to bankruptcy and agreed to be an unsecured creditor and receive only 10% to 13% of its $22-million claim — estimated at $2.2 million to $2.8 million, according to the audit.

UHY Advisors concluded Marrocco "had a good-faith claim. At the time, he had no way of knowing the outcome of the bankruptcy case," the summary states. "However, at the end of the day, more than twice as much in legal fees were spent than will be recovered."

The summary states that Marrocco spent $1.9 million in litigation against Oakland County communities on two cases related to the Oakland Macomb Interceptor Drain.

Public Works lost both cases, which were appealed to the Michigan Supreme Court. UHY's counsel concluded that while Public Works probably had the authority to bring both cases in good faith, "it may have been ill-advised."

The audit summary states that communities received no benefit from the legal fees spent, and that Marrocco could have petitioned the court to have the Oakland Macomb district pay $1.3 million in Macomb's legal fees, "however this action was not taken."

The summary also states that Miller's office plans to work with Oakland Macomb district to drop the appeals.

The audit summary references another set of legal fees worth $1.9 million, related to alleged overpayments by the Detroit Water and Sewerage Department over the 2004 sinkhole. The case is in the process of being settled, the audit states, but "not before spending over three times the amount in legal fees as will be recovered."

The summary also states that Marrocco spent nearly $40,000 of county taxpayer money to defend public works in a case involving Marrocco's business partner, Simon Mauro, who sued the county, Public Works and Marrocco personally. It states that Marrocco hired Kirk, Huth, Lange & Badalamenti to represent Public Works instead of the county's corporation counsel, raising "a negative public perception issue on the use of taxpayer money" to possibly pay for a private business matter.

The audit states that since Miller is working to resolve outstanding legal issues and has re-instituted the Macomb district's board, which approves contracts, invoices and other matters.

Contracts are bid out, legal counsel costs less per hour and a 2010 agreement allowing the commissioner to operate and manage the board in secret has been revoked by the board, the summary said.